Are you looking for the best checking account? If your answer is yes, then you have come to the right place. We bring you a useful guide on the best checking accounts out there and other related information that will help you develop healthy habits in managing and protecting your money, and making good financial decisions. So, let’s get started.
What is a checking account and how does it work?
A checking account is one of the many different accounts that banks offer. These accounts let you access your money easily through withdrawals and deposits. Strictly speaking, the ability to write checks is what defines a checking account. However, in today’s modern world, where you can write a check or use a debit card to make payments and withdraw cash, most people tend to opt for ATM and debit cards instead of writing checks. This type of bank account is the first step towards a world of personal finance because it is commonly used to receive direct deposits and pay small expenses. It basically simplifies your everyday finances and offers extra convenience.
There are many reasons why opening a checking account is a smart move. For example:
- Your employer can deposit your paycheck into a checking account
- You can use online bill pay to keep your bills in check
- You can transfer money to other people with bank accounts
Checking accounts are convenient because they do not place many restrictions on how often you can withdraw your money from an ATM or in person, unlike savings accounts. The same goes for credit card purchases and transfers. Additionally, they have lower interest rates than savings accounts.
Aside from banks, credit unions also offer checking accounts. Those are non-profit enterprises that provide traditional banking services. Since they enjoy tax-exempt status, they can offer you access to better rates and other generous deals.
How to Pick the Best Checking Account for You
According to the latest research, about 44% of all Americans who were asked to name their main reason for choosing their checking account said it was the location. What’s interesting is that, back in 1992, that same answer was given by almost an identical percentage of people. Still, banking has changed drastically since then, which means that you have to adopt new criteria when choosing the best checking account that will work for you.
Today, location or the personal relationship with your banker are becoming less important than fees and interest rates. Here are the most important tips to consider when you are shopping for a checking account.
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Choose an account that meets the requirements of the Federal Deposit Insurance Corporation (FDIC). In that way, it will protect your funds up to $250,000. In other words, if you have up to $250,000 and the bank fails you in some way, the government will make sure that you will get your money back.
Look for free checking accounts
Did you know that there are free checking accounts? Research has shown that one in four checking accounts still has no monthly maintenance fee. So, why pay a monthly fee that costs $13.51 a month (or $162.12 per year) when you can keep that money? Make sure you take advantage of free checking accounts to save some cash.
Whether you choose a traditional or online bank, ask about all fees associated with the checking account. Did you know that banks can charge you for inactivity? Yes, that’s right. Compare fees before you shop around for a checking account.
Explore online options
We do plenty of things online – we shop, communicate, earn money, etc. So why not bank online? Online-only banks are growing in popularity because they offer great features and almost no fees.
ATM locations, not a bank location
Do you access your money via an ATM more often than you visit a branch? If so, research where the bank has ATM machines. If you use another bank’s network machine, it will cost you over $4 per occurrence. The thing is, convenience should not cost you extra money.
No-fee bill pay
If you prefer writing checks over using a debit or a credit card, you should look for an online checking account that does not charge for them.
User-friendly mobile app
Online banking usually implies managing your money from your phone. You will want to set payments, deposit checks and review bill payments with just a couple of taps. Make sure your bank offers this option to meet your needs.
Now you know what to look for and what to avoid when it comes to choosing the best checking account for you. In order to make the process of searching for an ideal checking account less daunting and time-consuming, we will list the best banks for checking accounts in October 2020 in the last section of this article.
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Opening a Checking account
Once you have found the best checking account, your next step is opening an account. Whether you apply for a bank account online or in person, you will be asked to provide the following details:
- Basic information (phone number, birthdate)
- Social Security number
- Driver’s license (or a passport)
- Proof of address (a lease or a utility bill)
Before giving you the green light, the bank will run a quick credit check to get a better understanding of your banking history and determine whether you represent too much risk. For example, banks usually report account holders who continuously write bad checks, who have failed to pay maintenance fees on previous accounts or whose account has been used to commit fraud or other criminal activity.
The database which banks use to find this information is called ChexSystems. If the bank approves you for an account, you might have to make an initial deposit. Note that not all banks require a minimum initial deposit and the amount varies from bank to bank. This minimum amount can be transferred from another account or you can bring the right amount of cash. And finally, the bank will give you a temporary debit card. You will receive your permanent card a few days after opening your account. A debit card can be used to manage finances online or at ATMs.
If You Are Denied a Checking Account
As mentioned above, before approving you for an account, banks and credit unions run a credit check. If your banking history includes a lot of bounced checks, unpaid fees, overdrafts, and other issues, you might get turned down for a checking account. Then what? What are your options? How do you qualify for a regular account again? Well, you can:
- Try with another bank or credit union – Some banks might turn you down but others may work with you. The only catch is that you may have to pay higher fees.
- Ask ChexSystems for a report – Contact ChexSystems and request a free copy of your file. If there is an error, you can ask the company to remove it. But, if you owe the bank money, you have to pay off your debt.
- Pay off your outstanding debt – The bank might offer you two options: to make a lump payment or create a plan to pay it off.
- Ask ChexSystems to delete settled debts – If you pay off your debt, send them receipts to prove that you have indeed done that. The negative mark will be removed from your file and you will be able to open a checking account.
- Apply for a second-chance checking account – Some banks offer this option to people who have a flawed banking history. However, these accounts do not provide all the services that come with regular checking accounts.
- Consider getting a prepaid credit card – The amount you deposit is the amount you can spend. However, you will pay a fee every time that you deposit money.
Types of Checking Accounts
Your goal is to open the best checking account that will meet your needs. Before you do that, you should know your options. There are several types of checking accounts and they offer different interest rates and fees. Compare checking account options so that you can manage your money better.
Regular Checking Accounts
Standard, regular, personal, plain vanilla… these are all the terms used for the most basic type of checking account. If you want a reliable brick-and-mortar service, where you can deposit money, make withdrawals, write checks, pay bills and shop with your debit card, this type might be ideal for you. A standard account will usually pay little or no interest on your balance. And, there is usually a small monthly fee for keeping the account. However, if your employer makes direct deposits, you can qualify for fee waivers.
Free Checking Accounts
Free checking accounts are free of fees, which means that there is no monthly maintenance fee and an opening deposit is not required to avoid a fee. However, do not let the name fool you, because these accounts are designed to attract more clients and are considered to be more expensive types of checking accounts.
You still have to pay overdraft fees, out-of-network ATM fees, foreign transaction fees and stop payment fees. In addition, some free accounts might not pay any interest because of the lack of paying a monthly fee. They are free if you just need an account to get your paycheck deposited and use online bill pay. You can find these accounts at online banks, credit unions, and small banks.
Interest-Bearing Checking Accounts
Interest-bearing checking accounts, also known as high-yield checking accounts, pay interest on your cash. True – the do not pay much. On the bright side, they can offer you a great opportunity to earn interest on the balance held in your checking account? However, these accounts have their pros and cons. The good thing is that money stays liquid, which means you can withdraw it any time you like.
Also, for higher account balance, there is a higher interest rate. On the downside, if you go below the minimum balance amount, you may lose interest. Plus, some accounts require you to use a debit or a credit card up to 10 times each month, which can be challenging for some people. Not many brick-and-mortar banks offer interest-bearing checking accounts, but you can easily find them at online banks.
Second-Chance Checking Accounts
As mentioned previously in the text, you can open a second-chance checking account, if you are not eligible for standard checking accounts due to a bad banking history reported by ChexSystems. Monthly fees are usually high and you have many restrictions. Also, they do not allow overdrafts. After you establish a good history, you can reapply for a standard account.
Online Checking Accounts
These accounts are suitable for clients who like to handle their finances over the internet and phone. You can open an online account at online banks and some brick-and-mortar banks as well. So, how do online accounts work? You can pay bills through an online bill payment system. To add money, you can set up a direct deposit with your employer. You can also mail checks, transfer money via wire transfer, and use a debit or ATM card for purchases or withdrawing cash. It is easy to use and fee-free.
Premium Checking Accounts
If you have a high account balance and you are looking for a checking account, a premium checking account might be right for you. For keeping a five-figure sum in the account, you will not pay a monthly fee, you will earn a little bit of interest and using checks and ATM comes without fees. Additionally, you get discounts on other services. But, just because you are eligible for opening this account does not mean it is the best option you have. It depends on your needs and whether you are using other services from your bank.
Low-Balance Checking Accounts
Let’s say you have a low income or you are a student who needs to open an account to maintain their balance, which is usually low. A low-balance checking account is ideal for you. When it comes to these accounts, there is no minimum balance requirement and no monthly fees. However, other services might be limited, unless you pay additional fees. Some banks offer check-writing privileges, which can be limited.
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Rewards Checking Accounts
Rewards checking accounts are not that common and they are harder to qualify for. If you meet specific requirements, you can earn interest. They pay a competitive annual percentage yield, but if you fail to meet some requirements, like using your card 10 times a month, the bank will pay less.
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Money Market Accounts
A money market account is an interest-bearing account but similar to a savings account. It pays higher interests than savings accounts but it also requires a large minimum balance. It is safe, as it is FDIC-insured. However, there are some restrictions, such as being able to make only three transfers per month or having a six-withdrawal limit. The money market account is best for infrequent expenses.
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Managing Your Checking Account: What to Know
Once you have opened a checking account, you should learn how to manage it to ensure your spending does not exceed your means. Even though we live in the “Age of the Internet”, many people, including employers, still use checks as a payment method.
Once your account is approved, your bank will send you permanent checks. You can get the checks from the bank or from a third-party provider. When you get them, you will find your bank’s routing number and your checking account number on your checks. The second number is important when making deposits or withdrawals. Checks can be cashed or deposited.
How to Write a Check
- Date – Write the current date. Enter it at the top.
- Payee – On the “Pay to the Order of” line, write the name of the person or the company you are paying money to
- The number amount – Write the number amount of the check on the right side (e.g. $48)
- Amount in words – Write the check amount in words in capital letters on the dollars’ line (FORTY-EIGHT DOLLARS)
- Signature – Sign the check on the line at the bottom-right corner
- Memo – You can write a note in the memo section (optional)
You can deposit checks at the bank or at an ATM, but you first need to endorse it. There are three forms of endorsements:
- Blank endorsement – There are two gray lines on the back of the check. You must sign your name on those lines without writing any other words above or below the signature. This kind of endorsement is considered to be risky because anyone can cash or deposit it. To avoid risky situations, it is recommended that you sign it after you are at the bank. Also, a blank endorsement is advised only for cashing a check.
- Restrictive endorsement – A check with this type of endorsement can only be deposited into an account in your name. You can make this endorsement by writing “For deposit only” on the first line and then signing your name underneath.
- Special endorsement – You will use this endorsement when you want to give your check to another person to cash or deposit it. All you have to do is write “Pay to the order of (name)” on the first line and sign your name underneath.
After you endorse your check, your teller will ask you to fill out a deposit slip. Now, deposit slips vary from bank to bank, and you may even have them in your checkbook, with your account number printed on it. Since there are different sections for currency cash and check, make sure you fill in the right amount in the right section.
If you are depositing a check at an ATM, you will need to insert your debit or ATM card and enter your PIN number. Some ATMs may require you to insert a deposit slip and a deposit into the machine in an envelope. Others just ask for checks or cash without a slip or an envelope. Both transactions take just a few minutes to complete but with banks, it has to be done during banking hours, which might not be convenient in some cases. On the other hand, you can deposit a check into an ATM at any time.
Whether you are using a bank or ATM for transactions, your funds will be available in your account usually within 2 business days. In the meantime, your check is being processed and your funds are on hold.
Direct deposit is a payment option where your funds are electronically transferred to your checking account, without the issuance of a paper check. This type of direct deposit is usually used to receive your employee paychecks or government benefits. A direct deposit is convenient for several reasons. First, you do not have to go to the bank to deposit checks. Second, you do not have to worry about your checks getting stolen. And third, they are processed quicker and funds are, generally, available the same day of deposit.
There are few ways to withdraw money from your checking account:
- Debit cards
- Electronic checks
- Online bill pay
- Automatic debit
- At a branch location
It is the opposite of direct deposit, which means that a certain amount of money is automatically withdrawn from your checking account to pay a bill. Automatic debit is very convenient for monthly payments that are fixed, for instance, your mortgage or an auto loan.
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Balancing Your Account
Balancing your account is your responsibility. You have to make sure that there is enough money in your account to cover your transactions to avoid unnecessary charges. Keep your own record and then compare it with the monthly statements from your bank. In this way, you will be able to spot any errors in the system or any unauthorized transactions.
Protecting Your Account
Financial fraud and identity theft are real, so you have to be very careful when it comes to your PIN number, online banking passwords, and other banking information. Never share them with anyone. Also, never use unprotected public Wi-Fi to connect to your account. If you notice unusual charges on your account or you lose your card, report it immediately.
10 Common Checking Account Fees
- ATM fees – If your bank does not have many branches, chances are that it will not have many ATM machines. So, if you use an ATM that is not part of your bank’s network, you will have to pay a $2 or $3 fee. On the bring side, many banks have a reimbursement policy, which means that you will be repaid. Make sure you check if your bank has this policy.
- Overdraft fees – It is best not to overdraft your account. But if you do, compare overdraft fees, because banks make a lot of money by letting their clients overdraw their accounts. Also, keep in mind that most banks will automatically sign you up for overdraft protection, which links your checking account to your savings account.
- Wire transfer fees – Banks typically charge for wire transfers. Sending money from one bank account to another can be costly, with fees of up to $45. Some banks charge fees both for sending wire transfers and receiving them. Check how your banks stand with this service before opening your checking account.
- Minimum balance fees – Some banks will charge you a monthly fee if your balance is below a certain amount. Be sure to check this as well. While this fee might be justified with savings accounts, it does not make a lot of sense with checking accounts.
- Paper statement fees – There are banks that charge for a paper version of your statement posted out to you. U.S. Bank charges customers who opt for paper statements up to $2 a month on some checking accounts. So, perhaps it is time that you get comfortable with online statements because they are fee-free. Moreover, if you are moving, do not forget to update your address because the bank will charge a fee if your statement gets sent to your old address.
- New debit card fees – when you lose your debit card, you will need to pay your bank to replace it. Replacement costs between $5 and $25.
- Human teller fees – Some checking accounts will also charge you money for using human tellers when you need to make a transaction or a deposit. If this is the case, find an account that gives you free access to tellers.
- Maintenance fees – Banks need to “maintain” your account and to do so, some of them charge a monthly maintenance fee. For example, Bank of America’s monthly maintenance fee is $12 per month, while TD Bank charges $15 per month. The good news is that you can avoid this fee by meeting a few terms, such as having a certain balance or signing up for a direct deposit.
- Account closure fees – Tired of all the bank fees? Well, you can close your checking account. But before you do, another fee is coming your way. If you are closing your account within 180 days of opening it, you might have to pay around $25.
- Inactivity fees – Strange as it may seem, if your checking account is not active for six months, chances are that this fee may be charged. You can avoid this fee by keeping your account live.
Traditional Banks vs. Online Banks
According to research done by Discover Bank, 82% of Americans claim to have used online banking at least once in the last 30 days. People use computers, tablets, phones, and other mobile devices to manage their finances. However, the question is, is banking from your phone better for you? Both traditional and online banks operate in the same manner and have their own advantages.
Here are a few pros and cons of online banking that might help you decide whether to stick to traditional brick-and-mortar banks or open a checking account with a web-based bank.
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Pros of Online Banking
One of the main reasons why online banks have become so popular is that they are very convenient. They are always open so you do not have to wait in line. All you need is an internet connection and you have access to your accounts 24/7 from anywhere in the world. You can make transactions at any time you like and check your balance using mobile banking apps. While some traditional banks offer the same service, you cannot access it from everywhere, which can be a downside.
Another advantage of online banking is the higher interest rates for both checking and savings accounts. This is because online banks do not need to meet the same type of overhead commitments as traditional banks do, and they can pass savings on to their customers. Traditional banks offer rates that range between 0.10% and 0.50%, while you can find online checking with rates of 0.9% to 1%.
With online banking, you can save even more money on fees. Online-only banks typically charge lower fees than traditional banks. With the latter, you have minimum balance fees, direct deposit fees, overdraft fees, debit card fees, and etc. With online banks, you will not have all these charges because these banks have lower operating costs.
Cons of Online Banking
Some people prefer the ability to go to a physical bank and build a personal relationship with the professional who handles their cash. With an online bank, customer service operates via phone or through an online portal, which means that there is no face-to-face interaction.
Depositing money to your account with online banks can be a hassle since there is no physical location. You can make wire transfers, mail deposits or make electronic deposits. But, if you prefer handing your check over to an actual person for a deposit, online banking may not be the best choice for you.
Best Banks for Checking Accounts in October 2020
Now that you have all the basic information related to checking accounts, their purpose, fees, types, etc., you are more than ready to open one for yourself. But before you do, you need to pick the right bank for this purpose – one that will be able to offer you a good deal with low fees, a good minimum balance and other customer-friendly options and conditions. To make that process easier and swifter for you, we offer you a list of this year’s best banks for checking accounts.
Charles Schwab Bank
Charles Schwab Bank is best-known as an investment platform, but it is also a traditional bank that offers online checking accounts. Their accounts, which are FDIC-insured, stand out in more than one way, such as having no minimum balance, low fees, free transfers, free bill pay, free debit card and checks, and perhaps the best one – no ATM fees. This is a great benefit for people who travel a lot because they can use ATMs anywhere in the world without paying a fee. Schwab reimburses you for charges from other bank’s ATMs.
You can earn 0.37% APY on your checking account balance.
If you are interested in opening the Schwab High-Yield Investor Checking account, you can do it after you open a linked Schwab One brokerage account.
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With a wide network of bank branches (nearly 5,000) and more than 16,000 ATMs, JPMorgan Chase is one of the largest banks in the country. It has good customer service and offers new customers a welcome bonus of $200 (offer expires on 10/14/19). The only requirement is that you need to set up a direct deposit, once you open an account. You can open a standard account, Chase Total Checking, and a few interest-bearing accounts.
Why choose Chase? Well, it offers low-interest rates and a $12 monthly maintenance fee, which you can avoid by keeping a minimum daily balance of $1,500, setting up a direct deposit worth $500, or $5,000 average daily balance across other Chase accounts. However, if you use your debit card at another bank’s ATM, you will have to pay a fee, on both sides.
Ally Bank is an online-only bank that stands out for its excellent customer service and live chat services available 24/7. It offers an interest-bearing checking account with 0.10% APY. It also offers little interest and no fees for regular activity. In addition to this, Ally owns over 43,000 ATMs nationwide and provides a $10 reimbursement per statement cycle for ATM fees charged using an out-of-network ATM. Ally does not have any physical branches.
One thing you cannot do with Ally Bank checking account is deposit cash. But, you can set up a direct deposit and a wire transfer, and you have the option of a mobile check deposit. Also, it has a 1% fee on foreign transactions, which can be a deal-breaker for those who travel often.
Capital One 360
Capital One 360 offers a top-notch banking experience with excellent customer service and major benefits. Capital One checking account is primarily an online account with no monthly fees and no minimum opening deposit. It pays 0.06% interest, which is higher than the national average. The rates are 0.20% APY on balances below $50,000, 0.75% APY on balances of $50,000 to $99,999 and 1.00% APY on $100,000 or more.
Capital One 360 has a large ATM network with over 39,000 ATMs. In addition to Capital One-branded ATMs, customers can also use ATMs that are part of the Allpoint network, without incurring fees. It offers reimbursement up to $15 per statement. You can also deposit checks from your mobile phone and pay bills online. A downside is its limited number of bank branches.
With only one branch located in Delaware, Discover Bank has managed to become one of the best banks for checking accounts in October 2020, thanks to its numerous outstanding checking account benefits. Some of them include no monthly service fee, no minimum balance requirement, no fees for online bill pay, free checks when you open your account, access to over 60,000 fee-free ATMs, and many more. The Discover Cashback Checking account lets you earn 1% cashback on up to $3,000 in purchases each month. This means that you can earn up to $360 per year in cashback.
Even though there is only one physical branch, customers have access to over 60,000 fee-free ATMs. It is mobile-friendly and offers live help 24/7, including chat support for enrolled customers.
Simple Bank was launched in 2009 and it is a part of the BBVA Compass. It has no physical branches and it offers all services through online and mobile banking apps. It is an online-only bank. There are no monthly service fees, insufficient funds fees, or overdraft fees.
Apart from offering a free checking account, this bank also offers a free mobile budgeting app that calculates how much money you can afford to spend on nonessential expenses after accounting for scheduled bills, savings, and transfers. This feature is called the Safe-to-Spend tool. Simple also gives you access to more than 40,000 fee-free ATMs.
This bank is ideal for those who want an account that makes it easier to budget and save.
Chime is a mobile-only bank that offers a free checking account with no monthly fees, no overdraft or foreign transaction fees, and no minimum balance requirement. If you set up a direct deposit, you can receive your paycheck up to two days earlier than at some other banks. This is because the bank does not hold your paychecks; it immediately processes checks.
If you like app-driven banking experience, then Chime is the right bank for you. Its app provides you with an opportunity to block your card, in case you notice fraudulent activities and transactions. Every time you use your card, you get a notification. It is also suitable for people who do not like writing checks. You can create and mail them online.
Chime provides access to 38,000 ATMs in the United States. However, if you use an out-of-network ATM, you will have to pay a $2.50 fee per transaction.
Axos Bank is an online bank that offers no monthly balance requirements and no fees, including maintenance, overdraft or nonsufficient-funds fees. Customers can choose between five checking accounts.
Its Rewards Checking has an annual percentage yield as high as 1.25%. If you have a monthly deposit of $1,000 and make 15 debit card transactions a month, you can get maximum interest. With its CashBack Checking, you get 1% cashback on debit card transactions (only signature-based transactions), but you are required to keep at least $1,500 as an average daily balance. If you fail to do so, you earn 0.50% cashback.
Axos Bank offers domestic ATM fee reimbursements. Its major downside is that, if your card gets lost or stolen, you pay a $10 fee to get it replaced. If you need it on short notice, it will cost you $50.
With Alliant, you can open a free, teen or high-yielding checking account. All these come with no monthly fee and no minimum or maximum balance. It offers ATM rebates up to $20/month for using other banks’ ATMs and user-friendly online banking and mobile banking app.
If you do not opt for paper statements and you have at least one electronic deposit a month, whether it is a mobile, direct or ATM one, then you get an annual percentage yield of 0.65%.
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Share Your Situation
So, which account would you like to apply for? Do you think that there are other banks that offer better deals than the ones we have listed? What do you think will be the future of checking accounts now that physical checks are slowly but surely going out of use? Feel free to leave us a comment!